Health-Care Goal Should Be Quality, Not Quantity

Sept. 5 (Bloomberg) -- The Independent Payment Advisory
Board is perhaps the most mischaracterized part of the health-care reform law -- which is saying something, given how many
false charges have been hurled at the Affordable Care Act. The
IPAB was designed to be a backstop to make sure the health-care
system makes a transition from fee-for-service payments to
payments based on value.

Because both sides of the political aisle agree that we
need to move away from fee-for-service, you would think the IPAB
would enjoy support from Democrats and Republicans alike. That
bipartisan appeal was reflected in the vaunted bipartisan
Bowles-Simpson budget commission report, which proposed
strengthening the board.

The IPAB -- a group of 15 health experts -- was designed by
the Barack Obama administration, however, and so by the new,
hyperpartisan laws of political economy, conservatives have a
duty to criticize it. The most recent critique can be found in a
misguided Wall Street Journal editorial.

Before we get to the IPAB, let’s look closer at the needed
shift in the way payments are made for health care. A white
paper from TriZetto Group Inc., a health information-technology
and management company, assessed this core problem more
accurately than the Wall Street Journal editorial board did.

“Providers, especially physicians, control the majority of
healthcare costs through decisions about diagnosis and
treatment,” the TriZetto authors wrote, and they correctly
emphasized the need for “direct modification of the behaviors
of providers (versus consumers or payers).” The Wall Street
Journal, like Republican vice-presidential nominee Paul Ryan in
his budget proposal, instead focuses on pushing consumers and
payers to make more economical choices. (Disclosure: In 2010,
TriZetto paid me to speak at a conference.)

Concentrated Expenses

Focusing on providers is key because health-care expenses
are so concentrated: High-cost cases account for the vast
majority of the total. In those cases, the care provided is, as
it should be, mainly the services and tests recommended by the
provider. So if you do not influence provider recommendations in
those cases, you cannot do all that much to improve the system.

The evidence suggests, furthermore, that shifting away from
paying for quantity and toward paying for quality affects what
providers do in those high-cost cases. Although other quality-improvement measures -- checklists, clinical-support computer
software, benchmarking physicians and malpractice reform -- can
also influence provider behavior, the payment system is arguably
the single most important determinant.

Providing a single comprehensive fee for treating a
particular disease, a so-called bundled payment, rather than
shelling out for each procedure is especially promising. In the
1990s, a Medicare pilot project that bundled payments for bypass
surgery reduced costs by 10 percent without diminishing the
quality of patient care. (Unfortunately, Congress did not
respond by moving Medicare in this direction.) Likewise, a
recent analysis of the Alternative Quality Contract in
Massachusetts, an innovative program that includes a pay-for-performance component, showed that it reduced costs by 3 percent
in its second year of operation, while improving quality.

None of this is surprising. Presumably the Wall Street
Journal editorial board believes in the power of incentives (in
this case, for providers). If you pay providers for quantity,
that’s what you get. We need to instead pay them for quality.

Shift Anticipated

The health-care-reform law moves significantly in this
direction, and I believe that one reason health spending has
decelerated so much over the past few years is that providers
are anticipating a drastic shift away from fee-for-service in
the years ahead. We should be doing everything possible to
continue this progress.

That’s where the grand debate over the future of Medicare
comes in. A recent article in the New England Journal of
Medicine, which I co-wrote as part of a group assembled by the
Center for American Progress, set a goal for the next decade of
making at least 75 percent of payments on some basis other than
fee-for-service.

The question is how to get there. The Wall Street Journal,
in supporting the Ryan budget, says insurance companies can lead
the way. Because the Ryan budget doesn’t expand the role of
insurance companies until 2023, however, it wouldn’t meet the 75
percent target over the next 10 crucial years. The health-care
system is making a transition now, not 10 years from now.

More fundamentally, even if the timing of the Ryan budget
were accelerated, it wouldn’t work as well, because to change
the structure of a big market often requires a dominant player
to lead the way. Which single insurance company has such a
dominant position that it can transform the health-care payment
system in the foreseeable future?

For better or worse, only Medicare is large enough to lead
the health-care system toward a new structure of payment for
providers. By pushing more Medicare beneficiaries into private
plans, Ryan’s budget would dissipate Medicare’s market share
across numerous insurance companies -- making it harder to
transform the payment system because none of the insurance firms
is big enough to pull it off on its own.

Which brings us back to the IPAB. Given that changing
provider behavior is the single most important step in moving
toward higher-value health care, and that Medicare has to play a
vital role in that shift, the question becomes whether Congress
can direct that change by itself. Perhaps it can, but there is a
good chance it cannot, when you consider how lobbyists work to
protect their narrow interests and the relative lack of medical
knowledge in Congress. The large number of sensible payment-reform proposals from the Medicare Payment Advisory Commission
that Congress has not acted on in the past illustrates the risk.

Legal Authority

The IPAB was designed to be a backstop in case Congress is
unable to overcome its inherent challenges. The board has the
legal authority -- if the growth in health-care costs exceeds
specific thresholds -- to propose measures that take effect
automatically unless Congress enacts alternatives.

The board’s critics claim that the IPAB will either ration
care or simply cut payment rates. By law, though, it is not
allowed to ration care. And Congress itself has proved capable
of reducing payment rates in a blunt fashion -- that doesn’t
require a panel of experts.

In the future, the board may be needed to gradually push
Medicare away from fee-for-service, if Congress is unable to do
so. Employers, payers and providers who are interested in
shifting the health-care system toward value should therefore
take a second look at the IPAB. Paying for quality will probably
turn out to be much harder without it.

(Peter Orszag is vice chairman of corporate and investment
banking at Citigroup Inc. and a former director of the Office of
Management and Budget in the Obama administration. The opinions
expressed are his own.)

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